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Violators beware

China’s burgeoning green laws pose challenges for international firms – and those who don’t stay ahead risk reputation and money. Justin Gerdes hears the message loud and clear at a chinadialogue seminar.

For China’s environmental protest movement, the summer and autumn of 2011 were a busy few months. American firm Johnson Controls was forced to shut down a lead-acid battery plant in Shanghai after 25 local children were diagnosed with lead poisoning; a coalition of Chinese environmental groups accused Apple of ignoring illegal pollution in its supply chain; two oil spills in Bohai Bay, kept secret for 30 days, left US conglomerate ConocoPhillips facing lawsuits; and Greenpeace released a report documenting serious pollution in China’s textile industry.

Meanwhile, a chemical plant in the port city of Dalian was ordered to close after 12,000 people took to the streets to voice safety concerns; and, in September, a crowd of 500 people stormed a Jinko Solar compound in Haining, after it was discovered toxic waste from the facility had killed fish in a nearby river.

This litany of incidents illustrates the growing pressure the public and NGOs are able to wield in the fight against pollution in China, Alex Wang, attorney and visiting assistant professor at UC Berkeley Boalt School of Law, argued at a recent chinadialogue law seminar in San Francisco. “There’s no doubt that there seems to be an increased pressure and intensity,” he said. Armed with an ever-expanding body of environmental law, these players are pushing for change in the corporate world, and – the seminar’s US audience heard – international firms operating in China must pay attention.

According to Charles McElwee, a formerly Shanghai-based lawyer and author of Environmental Law in China: Managing Risk and Ensuring Compliance, the swell on the street is increasingly likely to be reflected in the courtroom. Despite serious obstacles, McElwee believes there is growing citizen recognition of China’s expanding body of environmental and tort law. “As the number of lawyers in China increases, as the public becomes more aware of tort claims, as people start to make the connection between health complaints and pollution in their locality,” we should expect to see more Chinese seek redress for environmental harm in the courts, he said at the same seminar, which was co-organised with Asia Society Northern California.

That China has environmental laws on the books is news to some outside the country, too. “When I mentioned to someone when I first moved to China that I was an American lawyer focusing on Chinese environmental law, they said, ‘Well, that must be easy because China doesn’t have any environmental law,’” McElwee said. “Fortunately, with that attitude, they turned into one of my best clients because, in fact, China has a full suite of environmental laws. If you don’t pay attention to them, you will be in trouble.”

But it has added to this model with a series of statutes advancing sustainable development. The Clean Production Law (June 2002), for instance, promotes resource efficiency and less use of toxic substances; the Circular Economy Law (August 2008) encourages closed-loop manufacturing, where the waste product of one company becomes raw material for another.

Foreign firms engaging in building work will be familiar with the Environmental Impact Assessment (EIA), which is required for new construction. That process specifies the pollution-control equipment to be installed, and sets industry-specific discharge limits for air, water, noise, solid waste and hazardous waste pollutants.

“There are penalties and enforcement provisions if you violate the law,” McElwee explained. “These can be particularly onerous for foreign entities, because, in many instances they tend to be targeted defendants. The assumption is that they have more money, deeper pockets, than Chinese companies.”

McElwee cautioned manufacturers to know when to follow local law. Local laws can be more stringent than national laws. But, he stressed, “Local laws can never be less stringent – no matter what the local environmental protection bureau may tell you. If they say, ‘We have a special dispensation,’ don’t believe them. They don’t. Or, if they do, it’s an illegal one, and eventually that loophole will be closed.”

As well as civil and legal pressure, there are also efforts to use the world of finance to influence the behavior of domestic and foreign firms seeking to expand in China. Kristen Durham, global gateway director at financial services firm SVB Financial Group, noted during the chinadialogue panel discussion that the importance of China’s now four-year-old Green Credit Policy, which aims to restrict lending to projects that have a negative impact on the environment. Though often characterised as “compulsory in design and voluntary in implementation”, she said experts do not expect this to be the case for long.

SVB’s development partner in China, Shanghai Pudong Development Bank, withdrew about US$26 billion (165 billion yuan) of credit from its most energy inefficient and polluting clients in 2009, Durham said, adding: “The scale in which the financial services sector can be an active participant in promoting environmental quality in China is not a small one.

“The banks are becoming better stewards. Industrial Bank – by a lot of people’s estimation – is one of the leading banks in this area.”

Despite all the positive noises, enforcement of China’s expanding green laws remains a major challenge. Environmental Impact Assessments, for instance, are often obtained after a project has started construction or is even completed.

When companies do get taken to court, however, there is, increasingly “real potential for liability concerns” under China’s tort law, McElwee explained. This body of law, an updated version of which took effect in July 2010, empowers individuals to seek damages in personal injury and product liability cases.

McElwee recounted the story of a Korean paint-brush manufacturer which used benzene in its production process. The company was sued by a resident living 500 metres from its factory, whose wife had died of lung cancer. The man received close to US$1 million despite the firm’s benzene emissions being below the discharge limit. “It didn’t even matter that they were complying with the applicable law; they were unable to prove that their benzene emissions had not caused her cancer,” he said.

Wang explained the background for such a verdict. “There’s been a bit written about the populist nature of courts [in China], that they’ll respond to popular pressure, or a perception that there is something wrong. Particularly if there are a lot of people involved, creating ‘instability’ in the area, then the courts are more subject to a response to that than you might expect courts in the US to be.”

The outcome in the benzene case, however, belies the hurdles facing plaintiffs in tort cases, which are expensive for most Chinese. Limited access to lawyers is a key problem. McElwee pointed out that China, with its population of 1.3 billion, has just 200,000 licensed lawyers. (California, with a population of 37 million, has 172,489 active members of the State Bar.) Few of these lawyers work in tort law, and just a handful of NGOs are able to take on tort claims pro-bono.

But the voices of optimism remain. Speaking at the Society of Environmental Journalists annual conference in Florida earlier this year, Christine Boyle, a researcher at the Environmental Finance Center, University of North Carolina, and formerly a Fulbright Fellow at the Chinese Academy of Science, pointed to the work of activist Ma Jun, whose NGO the Institute of Public and Environmental Affairs publishes pollution data made available by the public disclosure law in an online map updated weekly.

“I see that this public pressure for cleaner water and air – the government is responding. But they’re happier to have it be done at the local level. Slowly but surely, it’s happening,” she said.

Justin Gerdes is a freelance journalist based in California.

For an in-depth look at the progress of China’s environmental laws to date, download chinadialogue’s special series “Green Law in China”.

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